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Thursday, May 22, 2003

Not Completely Alone

I'm not completely alone, there is, after all, Eddie, our 'man in Singapore'. And before you all take pity on us old-fashioned interventionists, I'd like to point out that I wouldn't want to bet that we'll see the same 'nothing to be done' argument continuing when the money starts to spill out of the euro again. The US may be a weakened growth engine, but it is, as Stephen Roach never tires of reminding us, the only one the world has right now, so if there are such things as 'fundamentals', then this is the one which should be reflected in the respective currency valuations. (Incidentally, Singapore is listed by the IMF as being at moderate' risk of deflation).

I’m also partly here at the local papers because I want to say some things that are not said here in Singapore. For example, the reaction of the local biz paper (“Business Times”) to the fall in the USD. “The knee-jerk reaction in some circles has been to lobby for a weaker Singapore dollar, but it's not entirely clear that such an over-hasty response is necessary, or even appropriate.”

It is a reaction that I expected. Yet in the same article, they note that: “The sharply higher euro has aggravated matters by effectively tightening monetary policy ........monetary policy has been tightened by the surging euro at a time when it needs to be loosened.” Spore is a much more open economy that the EU. I think the central bank here should try all it can to curb the rise of the local currency, hard as it is in practice. But we can only seriously attempt to do that by starting to run down some of the massive fiscal reserves I mentioned earlier. Don’t know if you believe this, but Spore has a current account surplus of almost 20% of GDP. People here think it’s a good thing. There can be such a thing as too much of a good thing. Nobody’s listening. It’s frustrating when you can see an accident but can’t do anything to stop it.

Another point about Spore (and SEAsia). There are no benefits system that’s dedicated to the unemployed. The unemployed can only get assistance via existing
schemes to help the destitute. So they have to prove that they are unable to work and have no means of subsistence, as well as no one to depend upon. So if
you have rich relatives, sorry mate. Better get your relatives to help. The scheme is administered strictly, and only on 1 –3 months basis. After putting yourself through the humiliation, what do you get? About US$300 a month for a household of 2 adults and 2 children. The average monthly wage here is US$1700. If you happen to earn more before you got retrenched, and ran down all your savings. Sorry again mate. Live on US$300 and go get a job. And better live in public housing because, at least, you can a waiver on your utilities bill. According to a household survey done a few years back, the lowest 20% of household expenditure was US$560. If this country doesn’t shake off the recession, you can feel an implosion.

Singapore's economy grew at a 1.1 percent annual rate in the first quarter of 2003, against an earlier official estimate of 0.7 percent, the government said Monday. The economy was boosted by strength in chemical and electronics exports, it said. The twin engines from Singapore's export sector overcame the ongoing contraction in the construction industry and weakness in the service sector. The government said it was maintaining a growth forecast of 0.5 to 2.5 percent for 2003, but would revise the target if the SARS outbreak changed significantly. Gross domestic product -- the total value of all goods and services -- grew 1.6 percent from the year-earlier and against the government's earlier estimate of 1.5 percent year-on-year. "This is in line with market expectations, no one was looking for a downward revision," said Joseph Tan, economist at Standard Chartered Bank Consumer price inflation jumped by 0.7 percent in the first quarter from 0.2 percent in the previous three months due to higher costs of healthcare and clothing.
Source: CNN Business

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